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Supreme Court wary 3rd-party lawsuits
Breaking Legal News |
2007/10/10 08:09
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The Supreme Court voiced skepticism Tuesday about efforts to allow lawyers, accountants and others who do business with large corporations to be the targets of class-action securities suits. At issue in the high-profile case is whether victims of large-scale corporate fraud can sue third parties that may have played a significant role in the scheme. Think Enron, Global Crossing or any other massive fraud that involved a web of business relationships, where outside experts allegedly signed off on questionable corporate practices.
The Supreme Court and other federal courts have largely frowned on such suits, saying that only the Securities and Exchange Commission has the authority to bring suit against third parties as so-called aiders and abetters. But following the wave of corporate implosions, class-action suits seeking to hold those entities accountable have been on the rise, largely because those outside parties often are the only ones left standing holding any assets. Tuesday, one of those investor class-action cases reached the justices, with several suggesting they are not inclined to allow the suit to go forward.
That's a view that will be welcomed by a range of powerful business groups, including the U.S. Chamber of Commerce and the American Bankers Association. Along with the Bush administration, they warn that making third parties vulnerable to such suits would result in an explosion of securities litigation, damaging American competitiveness in the global marketplace.
The closely watched dispute is one some observers have labeled the "Roe vs. Wade" of securities law, one in which more than 30 friend-of-the-court briefs were filed, and it played to an electric atmosphere in a packed Supreme Court chamber.
While business groups largely lined up one side, such consumer advocates as AARP, the senior citizen lobby, and the Council of Institutional Investors stood with the investor plaintiffs.
"The stakes are enormous," said Jeffrey McFadden, a Washington securities lawyer who attended the arguments.
The case involves Charter Communications Inc., a cable television provider that entered into side deals with Motorola Inc. and Scientific-Atlanta Inc., two makers of set-top cable boxes. In 2000, in a scheme to pump up its revenues, Charter agreed to overpay the vendors for the boxes. The vendors then returned part of the money to Charter in the form of advertising fees, adding about $17 million to Charter's balance sheet.
After the machinations were revealed and Charter's stock price plummeted, investors brought suit against all of the parties. Charter eventually settled, leaving the two vendors in the suit.
Lawyers for the vendors argued that the companies never knew the extent of Charter's scheme to inflate its revenues and that they never made any false representations directly to Charter's shareholders, something required to find a violation of federal securities law.
A Missouri federal court dismissed the case against the vendors and the federal appeals court in St. Louis affirmed, citing Supreme Court precedent that has interpreted federal securities laws to bar private causes of action against third-parties.
Chief Justice John Roberts on Tuesday demonstrated little interest in departing from precedent, saying that Congress had clearly decided who could and could not bring suit under federal securities laws.
"We don't get in this business of implying private rights of actions anymore," Roberts said. "We haven't done it in quite some time."
And Justice Anthony Kennedy seemed to worry that once the door to such suits was opened there would be no end to them -- and that companies would simply stop doing business with publicly traded companies as a result.
"I see no limitations to your proposal," he said to the counsel for the investors, New York lawyer Stanley Grossman.
But Grossman argued that there would be no litigation free-for-all, saying that a requirement that third parties must actively participate in an intentional effort to deceive the public would eliminate most prospective actions.
Among the justices, Ruth Bader Ginsburg appeared most likely to come down on the side of the plaintiff investors. She was critical of the vendors' conduct in the case, saying it was possible they knew about Charter's plans but sat by passively. The scheme "can only work if the vendors are silent. Silence, not speech, is what counts," she said. "They set up Charter to make those statements to swell their revenues, revenues they didn't have."
Ginsburg repeatedly expressed a desire to find some sort of middle ground between barring the suits altogether and elevating third parties to the level of the primary corporate defrauders. She noted that it was unlikely the SEC could ever make fraud victims whole by suing third-parties on its own, since the government is not in a position to distribute large damage awards.
Chicago lawyer Stephen Shapiro, arguing for the defendant companies, said Congress had rewritten the securities laws in the 1990s to allow only for the SEC actions and the court needed to recognize that. |
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Lawyer Pleads Guilty To Racketeering Conspiracy
Breaking Legal News |
2007/10/09 15:22
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An ex-partner in the New York law firm Milberg Weiss pleaded guilty Tuesday in Los Angeles to a charge stemming from a scheme in which clients secretly were paid kickbacks for serving as named plaintiffs in more that 150 class action lawsuits, prosecutors said. Steven Gary Schulman pleaded guilty to a racketeering conspiracy count.
In a hearing before U.S. District Judge John Walter Friday morning, Schulman acknowledged his role in the scheme.
"Are you pleading guilty because you are in fact guilty?" Walter asked.
"I am," Schulman replied.
Schulman faces a maximum sentence of 20 years in federal prison and a $250,000 fine. He has already agreed to forfeit $1.85 million in proceeds he made from the conspiracy, Assistant U.S. Attorney Richard Robinson said.
Schulman's sentencing hearing is scheduled for 9 a.m. on June 23.
Schulman and his attorneys, Herbert Stern and Gordon Greenberg, had no comment after Tuesday's hearing.
According to an information filed last month by federal prosecutors, Schulman and other Milberg Weiss attorneys made a secret payment arrangement with Howard Vogel to "prepare and file numerous class actions in which Vogel, his relatives and entities that Vogel controlled served as named plaintiffs" for the law firm.
Vogel, who pleaded guilty last year to his role in the scheme, received about $2.5 million in illegal kickbacks from Milberg Weiss, prosecutors said.
The illegal kickbacks were secretly paid by Milberg Weiss to named plaintiffs through various intermediary law firms and lawyers selected by paid plaintiffs, including Howard Vogel of Florida, prosecutors said.
Milberg Weiss received "well over $200 million" in attorneys' fees from more than 150 class action lawsuits over the past 20 years, prosecutors said.
A May 2006 federal grand jury indictment stated that three named plaintiffs received at least $11.3 million in kickbacks, prosecutors said.
By 2003, Schulman knew the firm was secretly paying Vogel a portion of the attorneys' fees that Milberg Weiss obtained in class actions where Vogel served as the lead plaintiff, according to prosecutors.
Schulman, firm co-founder Melvyn Weiss and others concealed the illegal payments from state and federal authorities by making false or misleading statements in documents filed in class action lasuits, prosecutors said.
The scheme's objective was "to provide Milberg Weiss and its partners, including Schulman, with a stable of persons who were ready, willing and able to serve ... as named plaintiffs representing absent class members in class actions," prosecutors said.
Another objective was to ensure that Schulman and other Milberg Weiss lawyers would be named lead counsel in class action lawsuits, prosecutors said.
Schulman also may be disbarred from practicing law in New York, where he is licensed.
Speaking to reporters after today's hearing, Robinson said Schulman may have decided to plead guilty after Walter had denied his numerous motions to dismiss the case.
In May 2006, Schulman was indicted by federal prosecutors for his alleged involvement in the kickback scheme. He resigned from Milberg Weiss in December 2006.
Two other Milberg Weiss partners, David Bershad and William Lerach, have already pleaded guilty to similar charges.
Melvyn Weiss is still facing federal charges for his alleged participation in the kickback arrangements. |
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Supreme Court lets HP lawsuit move forward
Breaking Legal News |
2007/10/09 15:14
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| The U.S. Supreme Court has denied an appeal by Hewlett-Packard Co. to dismiss a class-action lawsuit against Compaq Computer Corp., which HP acquired in 2002. The lawsuit, filed in 2003 by Oklahoma residents Stephen and Beverly Grider, alleges that Compaq sold them a computer with a defective floppy disk drive. The company did not replace the faulty drive, the Griders alleged. The U.S. Supreme Court on Tuesday refused to intervene in the Oklahoma lawsuit on behalf of HP. The case now goes back to an Oklahoma state court. In 2005, the District Court of Cleveland County, Oklahoma, allowed the Grider lawsuit to become a nationwide class-action lawsuit. HP had appealed that decision. Since 2000, several U.S. residents have filed similar lawsuits against Compaq and HP. The lawsuits alleged that Compaq sold computers with faulty floppy disk controllers, causing data loss or corruption. The Texas Supreme Court in 2005 refused to allow a nationwide class-action lawsuit in a case that had been filed in the state in 2000. HP had argued that the facts in the Oklahoma case were similar. An HP spokesman wasn't immediately available for comment Tuesday. |
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Supreme Court Dismisses Lawsuit Against CIA
Breaking Legal News |
2007/10/09 15:12
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| The U.S. Supreme Court has refused to review a lawsuit brought by a German man who says he was kidnapped and tortured by agents of the Central Intelligence Agency. VOA National Correspondent Jim Malone has details from Washington. The high court rejected the appeal of Khaled el-Masri without explanation. El-Masri is a German citizen of Lebanese descent who says he was kidnapped by CIA agents in Macedonia in 2003 and then taken to Afghanistan where he was held for months and tortured by his captors. El-Masri was released in 2004 after he says U.S. officials realized he was not involved with terrorism. The Bush administration argued that el-Masri's appeal should be rejected because allowing his lawsuit against the CIA suit to go forward in court would expose state secrets. Lower federal courts sided with the government and the Supreme Court effectively ended the case when it refused to consider it further. El-Masri's case sparked outrage in Germany and mobilized civil and human rights groups on his behalf. Sharon Bradford Franklin is an attorney with the Constitution Project, an organization that seeks to protect civil liberties during the war on terror. "Well, we are very disappointed that the court decided not to take the case," said Franklin. "We really felt that this was an excellent opportunity for the court to revisit the scope of the state secrets privilege." The Supreme Court formally recognized the government's right to protect state secrets in a 1953 ruling that allowed the U.S. military to keep secret the details of a plane crash. The el-Masri case also drew attention to the CIA program of what is called extraordinary rendition in which terror suspects are sent from one country to another for questioning. Human-rights groups have criticized the program and raised questions about the torture of terror suspects. They had hoped the el-Masri case would shed new light on the practice. "The Bush administration has used what is known as the state secrets doctrine liberally to seek dismissals of cases that raise embarrassing issues for the government and perhaps would expose illegal activity," said Jennifer Daskal with Human Rights Watch.
The Supreme Court decision was welcomed at the White House. This is presidential spokeswoman Dana Perino. "This is a country that is facing unprecedented threats that we have not dealt with before in terms of al-Qaida and other terrorists, and I believe that the Justice Department is judicious in applying the state secrets act," said Perino. President Bush has repeatedly defended the administration's policies in the war on terror and just last week again rejected allegations that terror suspects are subject to torture. "This government does not torture people," he said. "We stick to U.S. law and our international obligations." Germany tried to extradite 13 suspected CIA agents to stand trial in the el-Masri case earlier this year but was rebuffed by the United States. |
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Sallie Mae $25 billion buyout ends up in court
Breaking Legal News |
2007/10/09 15:10
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| The planned $25 billion buyout of U.S. student lender Sallie Mae has ended up where many said it would -- in court. Sallie Mae said late on Monday that it filed a lawsuit seeking a breakup fee of $900 million from the consortium led by J.C. Flowers & Co, which last week proposed to cut its bid price for the lender citing a recent credit market squeeze and legislation that slashes subsidies to student lenders. Sallie Mae's lawsuit seeks a declaration that the buyer group has reneged on the merger agreement, that no "material adverse change" has occurred, and that Sallie Mae may terminate the takeover and collect the $900 million. A material adverse change is a condition that could cause a substantial reduction in earnings power and it can give buyers or lenders a "walk right" from their obligations. The lawsuit is being seen by many as a hard-ball attempt by Sallie Mae to force the buyer group to stick to the original deal, in which the group offered $60 a share, or come up with something closer to it than its revised proposal of $50 a share, or $20.6 billion offer, plus extra payments depending on how the company performed. "We are prepared to close under the contract the parties signed in April," said Sallie Mae chairman Albert Lord in a statement late on Monday. "Sallie Mae has honored its obligations under the merger agreement. We ask only that the buyer group do the same." The original buyout agreement has a $900 million breakup fee. But if the buyers could prove the student lender has suffered a material adverse change, they would not have to pay it. J.C. Flowers & Co said on Tuesday their revised buyout offer has expired and that the future of deal would be resolved in court. "We regret that our offer to amend the terms of the Sallie Mae transaction was allowed to expire without discussion," J.C. Flowers said in a statement. "Instead, Sallie Mae filed what we firmly believe is a meritless lawsuit. We now look forward to having this matter resolved in the Delaware Chancery Court." J.C. Flowers repeated its stance that a material adverse change has occurred and that Sallie Mae has misinterpreted the merger contract. Joel Greenberg, co-chair of law firm Kaye Scholer LLP's corporate and finance department, said it would be difficult for J.C. Flowers to argue there has been a material adverse change, because the contract specifically addressed the question of new legislation. "Is it so substantially worse than the company predicted that it is a material adverse change? It's a very hard argument," Greenberg added. |
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Law Firm Agrees to Pay $27.5M to Settle Age-Bias Suit
Breaking Legal News |
2007/10/09 05:16
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| The international law firm of Sidley Austin LLP has agreed to pay $27.5 million to 32 former partners who the U.S. Equal Employment Opportunity Commission (EEOC) alleged were forced out of the partnership because of their age, under settlement approved by a federal judge. The EEOC brought the suit in 2005 under the federal Age Discrimination in Employment Act (ADEA). A major issue in the case was whether partners in the law firm were protected as employees under the ADEA. The settlement provides that "Sidley agrees that each person for whom EEOC has sought relief in this matter was an employee with the meaning of the ADEA." The settlement also includes an injunction that bars the law firm from "terminating, expelling, retiring, reducing the compensation of or otherwise adversely changing the partnership status of a partner because of age" or "maintaining any formal or informal policy or practice requiring retirement as a partner or requiring permission to continue as a partner once the partner has reached a certain age." "This case has been closely followed by the legal community as well as by professional services providers generally," says Ronald S. Cooper, general gounsel of the EEOC. "It shows that EEOC will not shrink from pursuing meritorious claims of employment discrimination wherever they are found. Neither the relative status of the protected group members nor the resources and sophistication of the employer were dispositive here." The $27.5 million will be paid to 32 former partners of the firm for whom the EEOC sought relief because they either were expelled from the partnership in connection with an October 1999 reorganization or retired under the firm's retirement policy. The average of all the payments to partners under the settlement will be $859,375. The highest payment to any former partner will be $1,835,510, and the lowest payment $122,169. The median payment (the value in the middle of all payments) is $875,572. |
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Ex-Google Manager Can Sue for Age Bias
Breaking Legal News |
2007/10/08 08:23
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| A 54-year-old former Google Inc. manager who claimed he was fired after a supervisor told him his opinions were "too old to matter" had his age discrimination lawsuit reinstated. Reversing a Santa Clara County trial judge, the state's Sixth District Court of Appeal ruled Thursday that Brian Reid deserves to have a jury hear the evidence he amassed that he says shows Google routinely gave older managers lower evaluations and smaller bonuses than younger managers. "Reid produced sufficient evidence that Google's (stated) reasons for terminating him were untrue or pretextual, and that Google acted with discriminatory motive such that a fact-finder would conclude Google engaged in age discrimination," Presiding Justice Conrad L. Rushing wrote. The Mountain View-based search engine company has denied Reid's allegations but also refused to say why he was fired. In court documents, the company said Reid was fired when the program he managed was canceled. Reid, a former associate electrical engineering professor at Stanford University, sued Google in July 2004, five months after he lost his job as its director of operations. He alleged in his suit that his supervisors did not initially tell him why he was being fired. Director of Engineering Wayne Rosing, 55, eventually said he was not a good "cultural fit" at Google, where some colleagues referred to him as an "old guy" and "fuddy-duddy," Reid said. Another supervisor, Urs Hoelzle allegedly said Reid, who is a diabetic, was too sluggish and "too old to matter" and his ideas were obsolete. Reid is seeking back pay and punitive damages. He made $200,000 a year and lost stock options valued at millions of dollars when he lost his job. |
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Class action or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued. This form of collective lawsuit originated in the United States and is still predominantly a U.S. phenomenon, at least the U.S. variant of it. In the United States federal courts, class actions are governed by Federal Rules of Civil Procedure Rule. Since 1938, many states have adopted rules similar to the FRCP. However, some states like California have civil procedure systems which deviate significantly from the federal rules; the California Codes provide for four separate types of class actions. As a result, there are two separate treatises devoted solely to the complex topic of California class actions. Some states, such as Virginia, do not provide for any class actions, while others, such as New York, limit the types of claims that may be brought as class actions. They can construct your law firm a brand new website, lawyer website templates and help you redesign your existing law firm site to secure your place in the internet. |
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